Blue Cross Writes Its Own Rx

July 2, 2007
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GRAND RAPIDS — Blue Cross Blue Shield of Michigan must improve perceptions about its responsiveness to customers, members, agents and providers to sustain its 68-year run in the outstate market, said Jeff Connolly, president of West Michigan operations and vice president of the state’s largest health insurer.

“Some of our stiffest competition has been ourselves,” Connolly said. “Certainly, this is an acknowledgement of the perception that we are difficult to work with and not responsive on a timely basis. Those are two elements that one, two, three years from now, when you ask somebody how they feel about Blue Cross, I want them to say differently.”

Named to his post six months ago, Connolly, 39, of Traverse City, leads about 500 employees of Blue Cross and its HMO, Blue Care Network, from the Indiana border to the Straits of Mackinac and throughout the Upper Peninsula. BCBSM counts 4.7 million of Michigan’s 10 million residents as members, with 990,000 members in the 56-county West Michigan/Upper Peninsula market.

Connolly said the effort to improve perceptions of Blue Cross is company-wide, but he did not detail the plan.

“We have plans in place today and we are evolving those plans, we’re adding to them,” Connolly said. “So I would say it’s in process. But they are going to be very specific and deliverable. It is a Blue Cross focus, so this is company-wide, but the issues here may be unique, and those that are, we will respond accordingly.”

Although he counts companies as big as retailer Meijer Inc. and Alticor Inc. among local clients, Connolly’s turf is packed with small companies that are struggling to keep health benefits affordable for themselves and their workers.

“The average size employer here on the west side, including the U.P., they’re between 25 and 50 employees,” Connolly said. “The most significant piece of our customer base out here is in the fully insured — in our world, community-based products. And we expect that trend to continue.”

BCBSM recently touted response to Blue Care Network HMO product called Healthy Blue Living which offers lower co-pays and deductible to members who embrace healthy choices, such as quitting smoking. Savings to employers can be as much as 10 percent. Some 46,000 people in Michigan have enrolled, 7,000 of them in the small and medium business heavy West Michigan market, Connolly said.

“This product fits all sizes,” he said. “We’re addressing six to seven top diagnoses, and those for the most part span across smaller to larger companies.”

The nonprofit plans to offer a similar product for self-insured small business PPO customers starting in July.

Instead of viewing his entire territory as a single market, Connolly said he’s carved it up into five submarkets to better focus on product offerings.

“Historically, West Michigan was viewed as one market. We’ve taken West Michigan and divided that up into five distinct markets, recognizing that one community’s needs may not mirror another’s. That is new, and the driver behind it is to take a community-based approach to what works best for that community.”

On the Blues’ platter: Southwest Michigan (Kalamazoo area); Lakeshore (Holland area); West Michigan (Grand Rapids area); Northern Michigan (Traverse City to Alpena); and the U.P.

A May report from Linda Watters, commissioner of Michigan’s Office of Insurance and Financial Services, indicated a 20.4 percent drop in the number of member-months for top small-group insurers from 2004 to 2006.

“Are we seeing a growing trend of employers dropping coverage? We’ve seen some. At this point, we don’t see it as a trend. But if we continue down this path (health cost escalation), very few employers will be able to afford group coverage,” Connolly said, arguing that the best bet for stemming premium price hikes is to place more of a focus on employees through wellness and chronic disease management programs.

Blue Cross Blue Shield organizations, first developed during the Great Depression era, have been facing competition from for-profit insurers since the 1950s.

Over the past 10 years, some Blues organizations have consolidated and converted into for-profit companies, while others are mutuals owned by their members and the rest are nonprofit. BCBS of Michigan has remained a nonprofit corporation and retained its place as the state’s biggest health insurer. BCBSM is governed by state statute that grants the company nonprofit status in exchange for other provisions, such as state oversight of rates. 

“We are a nonprofit company, which means we serve our members, not our shareholders. In my opinion, that’s a long-term value versus a short-term value,” Connolly said. He added that he has spent a considerable amount of his six-month tenure meeting with hospital executives, health care providers and business leaders, putting a high value on relationship-building.

Commercial insurers such as Aetna Inc., United Health Group and Humana Inc. have been muscling into the Michigan market. But in West Michigan, Connolly said, his most robust competition comes from another nonprofit, Priority Health, the Spectrum Health-owned health plan.

“I understand Priority is their No. 1 competitor out there,” said Rick Byrne, industry analyst for HealthLeaders-InterStudy. “I don’t see much of anybody challenging. Priority is a little ahead of the Blues in the western part of the state, but the Blues, by being the largest in the (Michigan) market, brings an economy of scale.”

In its most recent financial filing with the state, covering the first quarter of 2007, BCBSM reported net income of $54.4 million, compared to $58.6 million for the first quarter of 2006. The company reported a net underwriting gain of $1.5 million, considerably less than the $21.3 million recorded for the first quarter of 2006. Net investment income rose from $45.2 million in first quarter 2006 to $55.4 million in first quarter 2007.

Byrne said the company is in better financial shape now than earlier in the decade, noting that it was losing $400 million on the small group market before reform legislation kicked in, in 2004.

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